1. During the Great Recession, the Fed, through the Federal Open Market Committee, purchased $800 billion worth of government bonds and other securities each month from banks thus increasing the banks reserves. Use the graph below to show the new supply curve for loans.
What happens to interest rates?
- They will decrease.
- They will increase.
- They will remain unchanged.
2. To stop rampant inflation the Fed decides to sell $400 billion worth of government bonds and other securities to banks, thus decreasing the banks' reserves. Use the graph below to show the new supply curve for loans.
What happens to the reserves of the bank?
- They will decrease.
- They will remain unchanged.
- They will increase.
What happens to interest rates?
They will remain unchanged.
- They will increase.
- They will decrease.
What happens to borrowed funds?
- They will remain unchanged.
- They will decrease.
- They will increase.